Transforming today PNG tomorrow...Transforming today PNG tomorrow A year in review á 2018 for a stronger 2 To enhance and transform all State Owned Enterprises to deliver premier

Transforming todayPNG tomorrow

A year in review · 2018

for a stronger

2

To enhance and transform all State Owned Enterprises to deliver premier services and economic returns.

Our Vision

Our MissionTo steer the holding entity and its respective SOEs to become profitable organisations; delivering reliable, affordable and efficient services whilst adhering to good corporate governance and best practice.

3

ContentsReview from Minister Duma .........................................................................................4Chairman’s Report .......................................................................................................5Leadership & Governance ...........................................................................................6About KCH ...................................................................................................................8

Introduction

Portfolio Review

Our Portfolio ................................................................................................................11Strategic Management ...............................................................................................12Outlook for our Investments .......................................................................................13Key Projects ...............................................................................................................14SOE Reports ..........................................................................................................18-35 Air Niugini .........................................................................................................18

PNG Power .......................................................................................................20

Kumul Telikom Holdings ..................................................................................22

PNG Post ..........................................................................................................24

Water PNG .......................................................................................................26

Motor Vehicle Insurance Ltd ............................................................................28

Kumul Agriculture .............................................................................................30

PNG Ports .........................................................................................................32

National Development Bank .............................................................................34

Financial Statements

Foreword ....................................................................................................................36Financial Statement: 2015, 2016 & 2017 ....................................................................37Closing Statement ......................................................................................................40Where We Operate .....................................................................................................42

4

Hon. William Marra Duma, LLB, LLM, CMG, MPMinister for Public Enterprises and State InvestmentsAs the Minister for Public Enterprises & State Investments, I am pleased to be responsible for this portfolio which impacts many aspects of the PNG economy, the function of society and community, and the lives of our people across the many villages, towns and cities that comprise our country. The Government of Papua New Guinea led by Prime Minister Peter O’Neill is investing in the future of our nation by funding major infrastructure impact projects. We have committed to over PGK2 billion towards these projects that will create transformational differences to our future.Papua New Guinea is well positioned to recommence an economic development curve at a rapid pace. Our country is now sitting at the threshold of another wave of significant overseas investment by overseas enterprises.The past 4 years have undoubtedly been some of the most challenging times - our State-Owned Enterprises have not been immune to the effects of regional and global economic slowing, on the back of volatile

commodity prices sliding to all-time lows, in turn creating turbulent times for our own economy.Our State Owned Enterprises comprise not only critical infrastructure, but are one of the largest income providers to the Government. We have therefore initiated a comprehensive ‘war on waste’ and continue to concentrate on spending programmes that only grow value and encourage sustainability.Our challenge and mandate is to bring our key infrastructure to global standards where we can see reduced power costs, safe and clean water for distribution to more people, faster and affordable communications, larger port facilities with efficient distribution, reliable and world class networks through our National Airline carrier, and diversified and sustainable economic growth through our agriculture developments.We want to see each asset delivering secure and safe working environments. We will encourage job security created by our assets through the delivery of profitable outcomes and performance improvements, and creating a future for the next generations with increased job opportunities created by the expansion of our assets to support future national growth.I commend the strategic steps taken by both Kumul Consolidated Holdings and the State-Owned Enterprises to establish and execute initiatives that focus on diversified revenue generation, operational optimisation, and customer value creation. Although we are still faced with a number of key challenges in the short term, the State-Owned Enterprises are well positioned for growth and service delivery, in the medium and longer term. I have confidence in the leadership and the capacity of each individual who is employed by our businesses to be able to contribute and deliver in the success of each business owned by our State Owned Enterprises. As the Minister for Public Enterprises & State Investments, it remains my charter to ensure that all State Owned Enterprises provide accessible, cost effective and reliable services, while delivering an appropriate return on the capital that has been allocated. Through the General Business Trust, held and managed by Kumul Consolidated Holdings, we are setting the framework and policies to restore, transform and return all our assets to efficient and sustainable operations.I look forward to the future reporting of our performances for the years 2019 and 2020, as we continue on our journey of restructure and investment, improvement, and performance based outcomes..

5

Mr Richard Tengdui, CPA PNGChairmanIn reviewing the previous 12 months of performance, achievements and our strategic journey, it is satisfying to acknowledge we have delivered on our objectives for 2018.Kumul Consolidated Holdings (KCH) is the strategic partner to all State Owned Enterprises; and is the largest shareholder for these assets. We operate independently to the Government of Papua New Guinea, while providing the accountability to the performance of the respective national assets.2018 has been a year of consolidation, transformation, investment and accountability. All of these items require planning and time to implement, with decisive outcomes achieved over an extended period. Positively, we are reporting that our hard work and strategic approach is delivering benefits ahead of forecast. We have strived for confident outcomes in all aspects of the strategic direction and credit needs to be given to the Executive Management at KCH and the respective assets on the rollout of these plans. We have seen the progression and completion of many major infrastructure impact projects in 2018. We are progressing cautiously with all of our investments, while at the same time implementing on-going reform that allows our key impact projects to progress in a manner that is transparent and meets all policy and completion objectives. I take great pleasure in reporting the successful establishment of our newest State-owned enterprise, Kumul Agriculture Limited. This initiative paves the way for very real progress in the achievement of government’s mandate to diversify the economy through the development of agri-based programmes that generate employment, sustainable economic land use, import replacement and tangible landowner engagement. We look forward to continued successes like Central Dairies and Sepik Plains.The progressive achievements will see further implementation of programs across all of our assets. The Executive teams at each of the assets are realising the opportunity for change, which is strengthening the operational performance.

“ We want our people to start each day with a sense of purpose and end the day with a sense of accomplishment, that’s the goal for all State Owned Enterprises.”

I reference performance and achievement as critical to our on-going success. While our assets are infrastructure critical to PNG, we do much more than just generate profitable outcomes. We operate one of the largest work forces in PNG, that touches tens of thousands of people in our workforce. We create job security, we create job opportunities and we provide for families nationally. It is our duty of care to ensure our assets progress to a global standard of efficiency, that continues to provide for all of our team members.I congratulate all of our current and past Board Members, Executive Management Teams, and every team member of each organisation for such a positive execution of our plans for the future.

6

Leadership & GovernanceBoard of Directors

Aho Baliki, OBEDirectorAho is a distinguished Career Banker with over Forty-four years’ service in the banking industry. He has served in a range of senior management positions with the former PNGBC and presently employed as General Manager Paramount Banking with Bank South Pacific, Port Moresby. Aho is a former Chief Executive Officer of PNG Banking Corporation and held a similar position at the National Development Bank. Aho currently serves on a number of boards including churches, landowner groups and the Government. He is Fellow of the Institute of Banking and Business Management and currently serves as a Director on the Board of Kumul Consolidated Holdings.

Richard TengduiChairmanRichard joined the KCH Board in May 2016. He assumed the role as Chairman since September 2018. He is an Accountant by profession with experience in the private sector since 1981. He established his own accounting firm in 1990 to which he is now Principal. Richard is affiliated to a number of professional associations; including full membership of both PNG Institute of Directors and Certified Practicing Accountants PNG. Richard attained a Bachelor of Accountancy from the PNG University of Technology in 1981 and a Post Graduate Diploma in Accounting & Financial Management from the Australian University of New England, NSW, in 1985.

Darren J Young, MBEManaging DirectorDarren is the Managing Director of Kumul Consolidated Holdings and has many years of senior management experience in property development and related industries within the marine, manufacturing and resource sectors. Born and educated in New Zealand, Darren has worked in Papua New Guinea for over 28 years with both private equity and publically listed companies such as Steamships. He is measured, pragmatic and works collaboratively to find solutions to complex problems. Experience includes exceptional success in managing a mix of businesses and projects driving significant strategic management across commercial, finance and marketing functions. In June 2013, he was awarded as a Member of the British Empire by Queen Elizabeth II for his services to commerce and the community.

7

Matthew MayDirectorMatthew joins the KCH Board of Directors with extensive experience working with clients across PNG, Australia and SE Asia. His core competencies include a long and successful track record as a corporate lawyer in PNG, with a fair understanding of the country from a legal and commercial perspective. Matthew’s most recent experiences consists of a range of strategic mandates for public and private sector entities. His key PNG relationships include Bank South Pacific, Oil Search and Kumul Agriculture Limited.

Moses MaladinaDirectorMoses joined the KCH Board of Directors in June 2018. He is a qualified lawyer and an agriculturalist who currently owns and operates a private coffee business in PNG. He has experience in public office, having assumed the role of CEO and Managing Director for Air Niugini; and later appointed PNG High Commissioner to New Zealand. Moses was elected to Parliament as Member for Esa’ala District in Milne Bay Province (2002 – 2012); the same term where he served as Deputy Prime Minister of PNG (2003 – 2004). He also occupied several Ministerial Portfolios in Cabinet then. Moses is a published author. He graduated with a Law Degree from the University of PNG and holds a Diploma in Agriculture from the Vudal Agricultural College in East New Britain (now PNG University of Natural Resources and Environment).

8

About KCH

Kumul Consolidated Holdings (KCH) KCH is the entity which holds in trust, the Government’s non-petroleum and non-mining assets. KCH (formerly known as IPBC) was established in July 2002 under the Independent Public Business Corporation of Papua New Guinea Act 2002 (the “IPBC Act”). KCH, is mandated to hold all Government-owned commercial assets in trust and to manage those assets to improve commercial performance and underpin economic development. KCH is not responsible for the Government’s mineral, oil and gas assets.

KCH RoleAs a trustee, KCH is the sole shareholder for nine (9) State Owned Enterprises (SOEs) operating in agriculture, aviation, banking and financial services, insurance, maritime infrastructure, power, post and logistics, telecommunications, and water and sanitation. KCH also acts as the manager of infrastructure projects throughout PNG such as hydroelectric power facilities, metropolitan sewerage systems property and port developments.

KCH Direction and PurposeKCH is the private equity arm of the State with a clearly defined mandate to build shareholder wealth and to improve the provision of services to the people of Papua New Guinea by:• improving existing and new SOE performance

through organic and external development;• investing in strategically important sectors –

currently telco, power, agriculture, fishing, property and tourism;

• investing in profitable and turnaround growth opportunities in non-oil and gas and mining industries that provide strategic and financial benefit to the State;

• leading corporate and sectoral restructuring initiatives; and

• optimising funding opportunities for KCH and its investee.

9

KCH Legislative FrameworkKCH is a statutory corporation that performs its functions and duties, and exercises its powers and authorities:• in accordance with sound business principles

and with due care, diligence and skill that a prudent business would adopt or exercise in similar circumstances; and

• reports to the National Executive Council through the Minister for Public Enterprises and State Investments.

KCH Legislative ObjectivesKCH is an independent statutory corporation that performs its functions and duties and exercises its powers and authorities:

i. to act as trustee and hold assets and liabilities that have been vested in or acquired by it, on behalf of the Government;

ii. to act as a financial institution for the benefit of and the provision of financial resources and services to Government-owned enterprises and the Government, where this is approved by the National Executive Council (NEC); and

iii. to enhance the financial position of the Government or Government-owned enterprises.

KCH’s accounts and records of financial transactions are audited by the Auditor General. KCH does not consolidate its accounts as it adopts a fair value approach of its assets and investments.The Government has the following interests under KCH:

National Executive Council

KCH BoardKCH as Trustee

General Business Trust

Majority State Owned Enterprises (100%)

Air Niugini Bank South Pacific (18.2%)

Motor Vehicle Insurance Ltd

National Development Bank

PNG Dams

Kumul Technology Dev Corp

Govt Stores

Kumul Property

POM Port Redevelopment Precinct

POM Sewerage System Upgrade

Energy Projects - Ramu 2

PNG Ports Corporation Ltd

PNG Power Ltd

Post PNG Ltd

Kumul Agriculture Ltd

Kumul Telikom Holdings Ltd

Water PNG Ltd

Listed Investments Other State Owned Assets Major Projects

Minister for Public Enterprise & State Investments

KCH Managing Director

Note:• Telco merger underway - Telikom, DataCo & Bemobile• Water merger underway - Water PNG & Eda Ranu• NEC approved Kumul Agriculture Limited as new 100% SOE

10

Corporate GovernanceKumul Consolidated Holdings holds a position as the major shareholder for Papua New Guinea’s infrastructure assets that requires transparency at all levels, including compliance with the rules and regulations wherever we have investments or operations.We are committed to the highest level of governance and strive to foster a culture that values and rewards exemplary ethical standards, personal and corporate integrity and respect for others.We believe in the power of strategic collaboration. This philosophy is being generated within KCH and is being reflected and nurtured in our assets as an approach to improving and managing sustainable corporate governance. This approach helps us manage risks effectively, enabling business continuity and sustainable growth. Our Board operates on a commercial basis, with the added statutory responsibility under PNG laws. Together with our Managing Director, KCH is working to re-build our national assets nationwide. We are challenged continuously to protect jobs in each of the assets. We understand the need for job security, however this assurance can only be provided when our national assets are performing with positive financial results. We can no longer operate organisations in the face of mismanagement and non-performance. We believe high-quality governance supports long-term value creation: simply put, good governance is prerequisite for the success of our assets.The annual Board schedule includes quarterly meetings, plus additional meetings as needed to discuss critical asset requirements.The Board has reserved the following matters for its decision:• overall long term strategic objectives• annual budget• annual audited statutory accounts• major investment and divestment proposals• major funding proposals• CEO appointment and succession planning• Board changesOur governance covers both delegation and accountability including:• Risk and Audit management / policies• Remuneration management / policies• Governance and Succession Planning• Sustainability Kumul Consolidated Holdings has initiated the global benchmark process of an Audit Committee.Comprising selected board directors, the Audit Committee supports the entire Board in its oversight responsibilities by reviewing – among other things – our system of internal controls, and processes used for financial reporting, audit, and monitoring compliance with laws and regulations. The Audit Committee also reviews the scope and results of the external audit, and the independence of the external auditors.The governance measures implemented within KCH are all about growing the wealth base for each of the assets. In creating performance base assets, that deliver profitable outcomes, KCH is stabilising the future of the assets and the future of Papua New Guinea.

11

Our Portfolio

Air Niugini LimitedInternational and domestic airline services

Motor Vehicles Insurance LimitedCompulsory Third Party insurance for all vehicles in PNG

National Development Bank LimitedRural Agri/SME financial services and development assistance

Kumul Agriculture LimitedFocus on agri-business development across PNG

Kumul Telikom Holdings LimitedProvides wholesale and retail communication services

PNG Ports Corporation LimitedResponsible for managing all sea-ports in PNG

PNG Power LimitedResponsible for managing the power grid throughout PNG

Post PNG LimitedProvides postal services and now diversifying into logistics

Water PNG LimitedProvides water, sewerage & sanitation services across PNG

Total Assets

K9 Billion

Number of SOE’s

9Headcount

7,117Revenue

K3.1Billion

Total Shareholder Return

K937Million

(USD 2.7B) Employees (USD 894M) (USD 290M)

12

Strategic ManagementWorking With Our Investments as an Active ShareholderKumul Consolidated Holdings has a charter under its act, to provide oversight, strategic direction and governance, related to the General Business Trust. KCH remains proactive in this approach – ensuring that the executive and board of each of the SOEs are allowed to manage their respective businesses appropriately. It remains government’s mandate to ensure that State-owned Enterprises deliver effective and productive services, whilst generating an appropriate return on the investment employed.It is fair and reasonable to say that many variables have been detrimental to the growth and competency of the state owned assets, over the last 4 years, notwithstanding global and regional economic challenges combined with questionable SOE management and investment decisions.The SOEs are critical to social and economic development – their successes are reflected in the services and utilities provided and the earnings distributed. A failure to deliver, however, can lead to significant impairment in growth and development.

In an effort to regenerate service levels, value creation and profitability, KCH and the SOEs embarked on an ambitious Strategic development programme.The management teams of KCH and the individual SOE established a number of initiatives that directly impact revenue generation, product development, cost optimisation and service delivery. We examined and restructured corporate culture, identified opportunities

Darren J Young, MBEManaging Director

to re-engineer customer engagement and diversify revenue streams, whilst keeping productivity, innovation and efficiency core to decisions. Skills development, succession planning and people enhancement underpin every step of our programme. Sustained growth is not possible without continued investment in the workforce.Our collective approach is to achieve measured and sustained outcomes that benefit our customers, our suppliers and our people.The collective vision of KCH for all SOEs is therefore to:• Elevate service levels immediately to equal world

class benchmarks• Drive the business to profit within 3 years• Deliver a sustainable return on assets not less than

10% per annum• Commit to delivering shareholder dividends that

encourage the expansion of the General Business Trust

This process has realised several opportunities to proactively seek direct investment in SOEs, partnerships and joint ventures – to develop positioning strategies that enable infrastructure development through the most competent, highest impact and yield. This remains a high priority, in line with government’s Alotau Accord 2 development mandate and in advance of the commencement of a new round of PNG resource projects, tourism and agri business programmes.

13

Outlook for our Investments

The State-owned assets represent a significant conglomerate that has the opportunity to deliver tremendous prosperity to PNG, whilst continuing to provide affordable, competent, sustainable services across the country.The past 12 months have been particularly difficult and challenging as greater emphasis has been placed on mergers, labour rationalisation, reduction to operating expenses, and budget focused macro-management to deliver profitable outcomes.

Not all of our planned outcomes have been achieved and realised in 2018. Notwithstanding the impact of a major earthquake and persistent drought, Papua New Guinea has continued to be subjected to financial pressures linked to global trends surrounding commodity pricing and supply, challenges with foreign exchange and strong competition in some of our asset categories. In an effort to significantly improve asset performance – in revenue and cost efficiency, targets were purposely aggressive. A fundamental change in the way in which SOEs perform is necessary to ensure they are appropriately positioned for expansion.This is not hiding the fact that our assets in some cases are simply not performing to expectations.

Greater importance needs to be placed on stronger governance and operational management issues.Papua New Guinea has managed a tough financial year and lower than expected GDP growth of 0.3%. Prudent fiscal management by the Government will see a stronger 2019 with forecasted GDP to hit 4% and inflation estimated at 5.4% (per the 2019 PNG National Budget).As the prudent management structures continue to align with the strategic goals, we are expecting 2019 to deliver a year of performance based outcomes, including increased revenues, managed cost reductions, improved labour force skill and knowledge based training outcomes, and greater dividend returns to the State.We are anticipating substantial performance improvements with our Telecommunications asset including market share growth, network expansion, network reliability and strong management / engineer resources to build performance back into this critical asset.Our national airline asset, Air Niugini, forecasts the most challenging year in its 45 year history, with the loss of two aircraft and the unfortunate fatality of a passenger aboard the B737 accident at Micronesia. The executive, board and shareholder will continue to reassure the traveling public that safety standards will never be compromised. We have supported the placement of a new Chairman and CEO to ensure that leadership is appropriate; we will continue to support initiatives that work toward achieving benchmarks for service delivery, sustainability and performance.PNG Power is also facing the most challenging year in its history both financially and operationally as it tackles the rehabilitation of its generation assets following years of neglect and some poor investment decisions taken in new power plants which have dramatically increased its cost of generation. We have additional objectives to further reduce power utility costs, with the power rates to reduce during the period 2019-2021. We need to establish efficient power transmission options that benefit the people, the corporate enterprises and future investment in Papua New Guinea. We need to promote least cost power generation and establish efficient transmission options that reduce electricity tariffs, benefit the people and our future capacity development – structuring partnerships that will help us to achieve in excess of 70% population coverage by 2030. The strategy will continue to be one that fundamentally transforms the way in which the businesses operate.

14

Key Projects

Kumul Consolidated Holdings is the implementing agency for the Port Moresby Sewerage SystemsUpgrade Project (POMSSUP), which involves the construction of a modern sewage treatment plant that has a treatment capacity of up to 18, 400 cubic metres per day; and upgrade of the existing coastal sewerage system currently operated by Eda Ranu.The project is valued at PGK 410 million, co-funded by the Japanese Government through its international development partner agency, JICA and the PNG Government. The state-of- the-art treatment facility is located at Joyce Bay in the Moresby South electorate.The aim of the project is to replace 60 year old, ageing and dilapidated infrastructure whilst improving hygiene and sanitation in Port Moresby thereby reducing the risk of contracting waterborne diseases. The project will also have positive outcomes for the environment. In preventing discharge of untreated

Port Moresby Sewerage System Upgrade (POMSSUP)

KCH Key deliverables for 2018• Completion of all 12.5km of Trunk Main

sewerage network• Completion of 13 Sewage Pumping

Stations.• Completion of 12.4km branch sewage

network• Completion of the 1.2km Ocean Discharge

Outfall pipeline of treated effluent• Completion and commissioning of the

new Joyce Bay Sewage Treatment Facility which comprises of 4 x oxidation ditches, 4 x sedimentation tanks, administration building, sludge building, electricity substation and UV Treatment room

• Completion and Sealing of in-plant and access roads

• Completion and commissioning of the new Joyce Bay Sewage Treatment Plant

• Recruitment and employment of 40 operational and maintenance crew for the plant by Eda Ranu

• PNG Govt budget of PGK 60 million to get the project through

• Completely reduce discharge of untreated sewerage into the sea at Koki, Ela Beach, Sea Park, Fairfax Harbour, and Joyce Bay

sewage into the ocean, the maritime environment is protected thus improving the diversity of the coastal ecosystem which will in turn uplift commercial fishing and recreational development potentials.Japan’s Dai Nippon Hitachi JV is the appointed contractor alongside NJS Consulting Supervising Engineer. The treatment facility is designed to treat 18.4 million litres per day, and comprises 13 pumping stations, a sewerage network of 26km and a 1.2km ocean outfall. The plant is built to the highest international standards for waste water treatment.The project commenced construction in April 2016 and is fully functional, awaiting commissioning.

15

Kumul Consolidated Holdings is the implementation agency for a number of energy projects throughout Papua New Guinea.

Ramu 2 Hydropower ProjectThe 180 megawatt (MW) Ramu 2 Hydropower Project is the largest power infrastructure project ever undertaken in Papua New Guinea to date. It is set to increase the Ramu System capacity by over 200% and the national generation capacity by a third (33%), using clean, sustainable and least cost sources of power.The State team led by KCH have concluded negotiations of all technical, legal and commercial terms of the project agreements with the Consortium partners, and are awaiting the final clearance and approval by National Executive Council (NEC) before parties execute the agreements.Seen as a nation building project, the Ramu 2 project is structured to supply base load energy to Wafi-Golpu and Ramu Nickel mines as well as clean, cheap and reliable electricity to the vast majority of people living within the Ramu system. The project is valued at K3 billion (US$ 939 million) and seeks to articulate the government’s long term strategic outlook to harness our abundant hydro resources into generating least cost energy for the local industries and its people.Shenzhen Energy Group of China is lead consortium partner in the Ramu 2 Hydropower Project. The PNG

Energy Projects

KCH Key deliverables for 2018• Commercial close: December 2018• Financial close: March 2019• Early works are scheduled to commence

in 2019

Government through the NEC appointed the Shenzhen Energy Sinohydro Consortium in 2016 to deliver the project under a build, own, operate, and transfer (BOOT) model. Under the BOOT model, the Ramu 2 asset will be transferred back to the Government after 25 years of operation – debt free. The State through PNG Power, the Eastern Highlands and Morobe Provincial governments; and the landowners will then own this multibillion kina power infrastructure asset that will continue to operate for up to 75 years; offering a long-term least cost energy for the country.During the construction period, the project will provide employment for thousands of skilled and semi-skilled PNG citizens. Upon commissioning and operation the project will employ PNG citizens. The engineering skills and other technical capability that this project will bring to the industry, is significant, and will benefit the country for decades to come.

16

The International Submarine Cable project linking Papua New Guinea, Solomon Islands and Australia is of great significance – one intended to boost connectivity, improve internet access and drive economic growth in the country. The Coral Sea Cable System (CS2) is estimated to be K331 (AU$ 136.6 million) and is being funded jointly by the Australia and PNG governments. The cable system, to be commissioned in November 2019, will link Port Moresby to Sydney and will increase the communications bandwidth capacity up to 20 Tb/sec, relieving the country of its dependence on ageing, congested infrastructure. Once this cable is live, the cost of internet access will reduce significantly – less reliance on expensive satellite connectivity. NEC has approved the Domestic Submarine Cable network (Kumul Submarine Cable System) to provide reliable, affordable and consistent in-country communications connectivity to existing networks. Currently, the country’s communications systems rely on limited bandwidth microwave connections or expensive satellite connectivity. A domestic fibre cable system will allow the rest of the country the opportunity to experience fast, affordable communications. The total project value is US$ 270 million (K879 million) – 85% will be funded through a concessional loan from China EXIM and 15% is counterpart funded by the PNG Government. The project will be built by Huawei Technologies and is ultimately owned by the wholesale communications arm of Kumul Telikom Holdings – DataCo.Once complete, the submarine cable will span approximately 5, 600 kilometres and connect 15 coastal and maritime provincial centres across Papua New Guinea. Initially the project will connect Port Moresby to Madang, with landing stations in Alotau, Popondetta and Lae.The second phase of the project will connect Madang to Wewak, Vanimo and New Guinea Islands – this is anticipated to be completed by end of 2019.Following the completion of NBN Phase 1 to rollout 4G across PNG, we will soon commence NBN Phase 2. At a cost of US$ 250 million (K750 million), the project will add tower infrastructure and upgrade the existing network to 4.5G in major towns and cities. The project will consolidate all mobile 2G to 4.5G GSM networks in PNG, underpinned by a competent billing, customer relationship management platform and operations network management system, with additional resilience and dual core back-up. The network expansion will

Submarine Cable International & Domestic

bring the total network capacity to 949 towers across PNG.The implementation of this project and the cable projects are anticipated to lower the cost of internet accessibility significantly, strengthen reliability and increase access to faster broadband services across the country.In conjunction with the 2018 APEC Programme and through an Australian Grant programme, PNG has received an O3B satellite system which will provide an additional 6 GB/s of bandwidth to the country – this increases current broadband capacity by 30%.Even with the establishment of new international and domestic submarine fibre capacity and extensive additional onshore, high capacity networks, PNG will still rely on satellite connectivity – though the reliance on it for primary communication services should decline considerably.

KCH Key deliverables for 2018• Signing of contracts for the International

cable system and appointment of main contractor

• Submarine cable survey of the domestic system

• Landing station agreements and early works commence

17

The POM Port Redevelopment Project evolved as a result of KCH acquiring the former Port Moresby port facility from PNG Ports Corporation Limited in 2015 to allow the relocation of the port to the new Motukea Port facility. KCH with will now redevelop the former Port Moresby port precinct area into a better and higher use by optimising its unique position and proximity to the Central Business District (CBD) and Harbour city.The proposed redevelopment will consist of the mixed use of high-end residential, hotels, serviced apartments and commercial buildings with extensive open and public areas for recreational purposes. A cruise ship terminal, retail and dining experiences will make the development one of the more impressive in the region for many years. An innovation centre and culture heritage museum will blend traditional values with modern advances. KCH intends to enter into a joint venture arrangement with a suitably qualified partner that will finance, design, construct and operate the project under a public-private partnership.The site covers three areas; 30.9 hectares of Lot 08 Section 53, Granville, 6 hectares of Lot 21 Section 26, Granville, and 1.5 hectares of Lot 9, Section 53. The proposed redevelopment is considered as a project of national significance; tailored to meet Port Moresby’s future city demands and at the same time recognising the “local heritage of Motu Koitabuans” through the development of the buildings depicting their culture.

POM Port Redevelopment Project

KCH Key deliverables for 2018• Rezoning the site from Industrial to

Business Commercial Zone• Appoint Investment and Development

Partner • Finalise financing and design

18

New strategies to fly high for the futureAir Niugini (ANL)

ANL is the national airline of Papua New Guinea. It commenced operations in 1973 and has operated as a Government-owned company since August 1996. ANL’s core business function is to provide international and domestic air services for passengers and cargo to and from Papua New Guinea.As at 31 December 2017, ANL has a fleet of 25 aircraft, flying to 14 international Asia, and Pacific destinations and 19 PNG domestic destinations. ANL carries more than 300,000 international passengers per annum and participates in code-share arrangements with several regional operators. ANL has approximately 75% of the domestic market carrying more than 900,000 domestic passengers per annum flying to 25 destinations, including 15 provincial capitals, 4 sub-regional towns and 6 mining towns.ANL continues to support PNG’s blossoming tourism industry by providing accessibility to the key domestic destinations. The airline is aware of the important role it plays in the development and sustainability of the country’s tourism industry – assisting the creation of a more diversified economy.

As part of an overall industry reform, KCH is currently reviewing the existing operations of ANL with a view to streamline non-core business activities and explore options related to the separation of international and domestic route services. The focus will be for ANL to continue to operate profitably in a competitive environment whilst meeting the demands of its customers.

Key drivers• Implement procurement approval and

control systems• Improve operating efficiencies and cost

management• Continuing the focus on East – West

strategy and ‘hubbing’ through Jackson’s Airport

• Build frequencies to major hubs across international and domestic network

• Strengthen recruitment, training and retention programmes

• Enhance in-country aircraft engineering capabilities

• Increase operational limits through instrument and night landing upgrades

19

KCH deliverables for Air NiuginiThe Airline industry is one of the toughest in the world, with decreasing operating margins between 2017 and 2018 as an on-going trend. However, globally there has been improved net profit forecasts across all the industry monitors.Our national carrier required stronger governance and stronger management procedures. In the beginning of 2018, KCH has worked with the airline management team to re-align strategies that would see the airline face issues head on, and spearhead a focus of addressing issues to create a long term future.2017 was always planned as a year of rehabilitation with a transparent focus on delivering the right capacity mix, focusing on improving our regional sectors, reviewing on international market requirements, placing emphasise on staff training and customer service, ensuring a longer term training program for additional pilots, and streamlining our servicing requirements of aircraft offshore.Our planning and strategic input has provided external support for Air Niugini, with focus on governance and policy creation. The plans established for the Airline have seen positive trends across all of the key indicators. Our focus for 2018 and 2019 will continue on critical management and reporting structures, with a continuous building program around improving our monthly reporting and forecasting. Air Niugini like most National Carriers require long term planning around aircraft, servicing, staff, fuel and capacity. We are reviewing all areas of the current structure to build a stronger and performance based National Carrier for the future of Papua New Guinea.

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

1,000

1,200

800

600

400

200

0

-200

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

1%

2%

3%

4%

5%

0

-1%

-2%

-3%

-4%

-5%

2017 (Act) Indicator 2018 (Bud)

1.26m Passengers 1.31m

1,045.7m Revenue 1,096.0m

1,089.1m OPEX 1,072.6m

(46.5m) EBITDA 61.7m

(45.5m) NOPAT 14.4m

(3.8%) ROA 1.4%

10.0m Dividend 7.2m

10.0m CAPEX 24.4m

Revenue OPEX EBITDA

To build on current volumes, ANL is embarking on an “East-West strategy” to leverage the airline’s central geographical location and develop Port Moresby as a transit hub to connect the major markets of Asia with the Pacific region. In line with this is the redevelopment of Port Moresby’s Jackson’s Airport providing world class airport facilities for the travelling public with efficient customer experience as they arrive, connect and depart through Port Moresby to domestic and regional international destinations. The full development of Port Moresby as a hub will benefit the economy. Similar redevelopments are being undertaken for airports in other centres of the country.ANL remains proud of its safety standards, despite a challenging 2018. The airline continues to operate to international air safety standards and per conditions set out by CASA PNG and other similar air safety bodies in the countries that ANL operates to. The company invests heavily in maintaining these standards across all aspects of its operations.

20

Powering communities across the countryPNG Power Limited (PPL)

PPL is a fully integrated power company responsible for generation, transmission, distribution and retailing of electricity throughout Papua New Guinea and servicing individual electricity consumers.PPL currently operates three (3) major electricity grids and fourteen (14) other standalone provincial systems. PPL is one of PNG’s largest State Owned Enterprises comprising generation assets with a total installed generation capacity of around 580 Megawatts, total of 4,100 km of transmission and distribution lines serving a growing customer base of over 124,000 customers’ nationwide encompassing industrial, commercial, government and domestic sectors. Where possible, the services extend to rural communities adjacent to these urban centres.As a utility company, PPL is subject to economic regulation by the Independent Consumer and Competition Commission (“ICCC”) which has responsibility for regulating competition and setting tariffs and service standards in relation to electricity supply. ICCC had issued PPL with a generation license, a transmission license; and retail and distribution license under the Electricity Industry Act 2002. PPL also acts in a Technical Regulatory role on behalf of ICCC. Its responsibilities include approving licenses for electrical contractors, providing certification for models of electrical equipment and appliances to be sold in PNG and providing safety advisory services and checks for major installations. The Government is in the process of establishing the Energy Regulatory Commission, which is expected to assume all regulatory functions previously held by ICCC within the energy and electricity industries.

Key drivers• Review the National Power Plan to determine

demand and supply requirements• Implement Rural Electrification

programmes and initiatives under the PNG National Energy Strategy - less reliance on thermal power stations, move to more sustainable solutions

• Implement strategies to improve billing and collection timing for non-Esipay customers

• Reinforce innovative e-commerce programmes

• Implement procurement review and control programmes

21

The major centres of Port Moresby and Lae are continuing to drive the demand of electricity supply.This has resulted in PPL and KCH investing in short term generation option as well as long term generation solutions. Short term solutions include entering into Power Purchasing Agreements with Independent Power Producers and purchasing diesel and gas fired generators to meet the immediate energy demand. In the medium to longer term, cleaner, sustainable hydro power is the main focus given PNG’s abundant hydro potential – this will be achieved through the rehabilitation of existing hydro assets as well as the investment and development of new substantial hydro power generation.PPL together with external funding partners are currently progressing major hydro power projects including the Ramu 2 and Naoro Brown Hydro Projects, whilst considering generation sources such as biomass and geothermal energy for future development. International support from multilaterals and economies will enable the achievement of Governments mandate for 70% of the population having access to reliable, consistent and affordable power, by 2030. This will require a significant change to the company’s operations. Not withstanding investment and development of sustainable least cost power generation, PPL will need to increase annual commercial and residential connections from 18,000 to 125,000.

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

1,000

800

600

400

200

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

3%

4%

5%

6%

2%

1%

0%

-1%

-2%


1.29m Demand (MHW) 1.37m

865.3m Revenue 923.1m

886.2m OPEX 872.5m

57.1m EBITDA 125.2m

(15.4m) NOPAT 34.8m

(1.5%) ROA 2.7%

0.0m Dividend 17.4m

213.6m CAPEX 275.4m

Revenue OPEX EBITDA

22

Keeping you connectedKumul Telikom Holdings Limited (KTH)KTH is a holding company endorsed by NEC to oversee all State interests in the information and telecommunication (ICT) sector of Papua New Guinea. Kumul Consolidated Holdings (KCH) is currently restructuring the three telecommunication entities (Telikom, Bmobile, and PNG DataCo) into one communications service provider from wholesale services to retail mobile and fixed line. Through infrastructure investment and adoption of next generation network architecture and platforms, the new company will be more efficient and competitive; and customers will enjoy affordable, reliable, comprehensive access to communication services. KTH subsidiary, Telikom PNG, was incorporated on July 1, 1955 to own and operate the telecommunications network in Papua New Guinea. It is wholly owned by the Government through KCH. Apart from its fixed-line core telecommunication business, which accounts for 43% of gross revenue, Telikom also provides data transmission services as well as retail and wholesale voice and data broadband services.Its network is entirely digital, extensive and an established combination of microwave radio, satellite and intra-city optical fibre transmission systems that connect to a nationwide network through telephone exchanges and data switches. PNG is linked worldwide through a combination of submarine fibre and satellite systems.

KTH, through its subsidiary PNG Dataco are implementing domestic and international submarine cable programmes which will provide significant increases in terrestrial bandwidth, supporting PNG mobile and fixed line communication platforms whilst substantially reducing the cost of accessibility. These projects represent an investment of over US$300 million from a variety of funding sources.The addition of NBN 1 and NBN 2 communication programmes, coupled with the submarine cable infrastructure will provide PNG with a first world communications technology platform that will encourage economic and social development, through increased digitisation. Only then can we see a dramatic decrease in communication costs during a substantial increase in reliable, competent capacity. This will be the catalyst for a revolution in digital engagement for PNG- realising opportunities for technology incubators, innovation centres and application, AI, and big data development.

Key drivers• Integrate the mobile

2G/3G network and leverage the 3G/4G network to increase subscriber base

• Reduction in reliance on satellite bandwidth

• Accelerate off-island fibre bandwidth programmes

• Implement operational cost reduction and avoidance programmes

• Implement procurement approval and control programme

23

Bmobile Limited operates a 2G/3G/4G network across PNG providing mobile GSM services. The company has 15% share of the mobile communications market in PNG, on prepaid and postpaid/corporate plans. Bmobile pioneered free on-net call bundles and has led the way in driving value into the market.PNG DataCo Limited is a wholesale communications services provider, with access to the group’s submarine and onshore fibre cable and satellite infrastructure. The company is the lead implementing agency for the domestic and international submarine cables, which will deliver revolutionary bandwidth capacity over the next 24 months.Telikom PNG Limited operates fixed line services across PNG providing high capacity broadband data and conventional voice services to commercial and residential customers. The company is upgrading traditional copper based lines with high capacity fibre optic cables to provide fibre to the building (FTTB) and fibre to the home (FTTH) services, in major centres. The company also provides substantial multi-user conventional and ‘cloud based’ PABX services to corporate customers.



401.0m OPEX 434.3m

95.0m EBITDA 142.6m

(33.1m) NOPAT (20.3m)

(2%) ROA (0.8%)

0.0m Dividend 0.0m

381.4m CAPEX 315.9m

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

500

600

400

300

200

100

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

-2%

-1%

0%

1%

2%

-3%

-4%

-5%

-6%

-7%

-8%

Revenue OPEX EBITDA

24

PNG’s National Postal ServicePost PNG Limited (Post PNG)Post PNG was created under the Postal Services Act of 1996. Post PNG is the national Postal Service provider of Papua New Guinea with 42 locations and 360 employees nationwide. Post PNG is mandated through Postal Services Act 1996 and is responsible for providing postal services including domestic money order (money remittances) in Papua New Guinea. Post PNG is subject to price control by the ICCC under the Prices and Regulations Act.Similar to most international Postal Services, Post PNG experienced significant declines in addressed letter volumes and other traditional businesses of postal operations. The company embarked on opportunities to diversify its service offering through investment in logistics and courier operations – air, sea and land freight and small parcel service, retail one-stop-shops and financial services. The significant footprint offered by the business puts Post PNG in a position of strength – purchase of airline tickets, to paying bills to money transfer. Post PNG is also investing in technology and innovation to enhance service offering, whilst improving productivity and efficiency.

Logistics Services:The company delivers substantial land, air and sea logistics services to both domestic and international locations. Serving a range of small and medium companies to large blue-chip multi nationals, Post PNG leverages its agreements with postal service organisations around the world to provide a comparable and competitive international network in the delivery of small parcel services. Strategic partnerships with domestic air freight services through its ‘sister’ SOE, Air Niugini, allows for door-to-door domestic freight services across 43 locations in PNG.

Key drivers• Continue to develop world class postal and

logistics services, offering competitive, reliable domestic and international options

• Continued implementation of sustainable innovation programmes in e-commerce

• Implement procurement review and control programmes

• Review current asset and portfolio including key infrastructure

• Diversify the revenue streams by strengthening existing retail placements

25

Financial Services: Given the significant footprint the Post PNG organisation maintains, the company provides much needed domestic and international money transfer services at each of its locations. Post PNG are considering expansion of service offerings from traditional ‘Western Union’ based services to mobile handset devices. The provision of financial services in rural and remote parts of PNG, promoting a ‘banking the unbanked’ culture will support social and economic development in marginalised sectors of PNG.Retail Outlets: Post PNG have an extensive retail footprint across PNG. From parcel, packaging and envelopes to other stationery items, Post PNG have attempted to duplicate the look and service offering of similar postal organisations in Australia, and Asia. A one-stop-shop for product purchases, and bill payments centres around the number of established locations and the digital branch networks connecting the locations. Partnerships are being considered with complimentary organisations that rely on similar branch locations and coverage for the provision of service – from communication services to car rental, from travel to tour booking and ticket purchase, to licensing and passport issue.


42.3m Revenue 46.2m

39.7m OPEX 41.0m

8.0m EBITDA 10.5m

2.4m NOPAT 5.2m

1% ROA 2%

0.5m Dividend 1.8m

13.5m CAPEX 3.7m

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

50

40

30

20

10

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

2.5%

2%

1.5%

1%

0.5%

0%

Revenue OPEX EBITDA

26

Safe water & sanitationWater PNG Limited (Water PNG)

The Government is in the process of merging Water PNG and Eda Ranu into one entity serving all centres in the country aimed to consolidate resources, provide affordable water and sewerages services to the people, and at the same time provide a reasonable return on investment.Water PNG, previously known as PNG Waterboard, was established under the National Water Supply and Sewerage Act of 1986 and commenced operation on January 1, 1987.It is wholly owned by the Government through KCH as the trustee shareholder.Water PNG’s core business is the coordination, planning, design, construction, management of and charging for water supply and sewerage services throughout Papua New Guinea. Water PNG is a monopoly water utility hence is subject to price control by the ICCC under the Price Regulations Act.Water PNG owns and operates twenty two (22) water supply systems throughout PNG including the city of Lae, 13 other provincial towns and 8 district towns. Water PNG aims to achieve water and sewerage coverage of 70% of the population by 2030 in line with the PNG Development Strategic Plan (2010 – 2030). Water PNG with support from World Bank is progressing provincial water supply and sanitation service projects across the country, valued at over US$50m. The objective of the Project for Papua New Guinea is to support the development and strengthening of the planning and implementation capacity of water sector institutions, and to increase access to water supply services in selected urban towns and rural districts.

Key drivers• Implement procurement approval and

control programmes• Review and Implement the National Water

Plan for supply and demand requirements• Implement National Water, Sanitation and

Hygiene (WaSH) policy• Implement strategies on non-revenue water

impact• Review and implement innovative rate

collection programmes

27

Eda Ranu Limited (Eda Ranu)Eda Ranu will be formally amalgamated with Water PNG. It is the company responsible for the provision of water and sewerage services in Port Moresby, the capital city of Papua New Guinea. The National Capital District Water and Sewerage Act 1996 is specifically formulated for Eda Ranu, and authorizes and regulates the operations of the water supply and sewerage systems. Eda Ranu is subject to price control by the ICCC under the Prices and Regulations Act.Since its establishment, Eda Ranu has operated under a twenty two (22) year Concession Agreement (CA) with a private sector partner (concessionaire) where the concessionaire has built and operated the main Water Treatment Plant that currently services Port Moresby. Eda Ranu purchases the bulk treated water and on-sells it to end customers through its pipe network throughout the city. The CA will expire in June 2019 and the Water Treatment Plant will be transferred back to Eda Ranu.The Government has directed that Eda Ranu merge with Water PNG to consolidate the State’s water and sewerage assets under one single SOE to meet the growing demand in this sector.The Port Moresby Sewerage Systems Upgrade Project, is a K410 million project aimed at replacing and rehabilitating aging sanitation infrastructure and establish a ‘state of the art’ treatment facility. The project was funded jointly between Japanese Government through Japan International Cooperation Agency (JICA) and the Government of PNG.The Government also approved the construction of a K475 million 50Mld Water Treatment plant at Bunu, Central Province. This will significantly increase the supply of water to the area including the PNG LNG plant, surrounding townships and Port Moresby city.

Water PNG


15,737Ml Volumes 15,850Ml


76.5m OPEX 83.8m

33.6m EBITDA 52.7m

19.2m NOPAT 23.3m

6.6% ROA 5.3%

3.0m Dividend 11.8m

30.3m CAPEX 595.9m

Eda Ranu


170ML/d Volumes 183ML/d


106.6m OPEX 114.2m

6.9m EBITDA 12.5m

1.7m NOPAT 4.9m

1.3% ROA 2.9%

0.5m Dividend 2.6m

41.0m CAPEX 86.8m

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

100

120

140

80

60

40

20

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

1%

2%

3%

4%

5%

6%

7%

0

Revenue OPEX EBITDA

28

Providing affordable insurance for PNGMotor Vehicle Insurance Limited (MVIL)MVIL provides insurance services across PNG. In January 1999, the Motor Vehicle Insurance Trust was re-capitalized as at December 31, 1998. The successor company is Motor Vehicle Insurance Ltd. MVIL is subject to price control by the ICCC under the Prices and Regulations Act.MVIL was established by the Motor Vehicles (Third Party Insurance) Act, as amended, to act as the sole compulsory third party insurer of all motor vehicles in Papua New Guinea. The Company also undertakes road safety initiatives and provides motor vehicle registrations and licensing services for all types of motor vehicles. MVIL has 22 branches and 3 sub-branches all over the country.MVIL subsidiaries in Pacific MMI and Pacific RE provide a range of insurance services and reinsurance services.

Compulsory Third Party InsuranceThe money or funds for the scheme comes from the premium that all motorists pay when they first register their vehicle for the road, and again at each annual renewal. The motor vehicles (Third Party) Insurance Act is designed to provide compensation to people injured in motor vehicle accidents. These funds are collected to pay individual claims, and an amount is set aside to educate drivers in safe driving practice to help prevent accidents and so reduce the suffering caused by the accidents. The employment of innovative technology to reduce the claims processing time, is an area that has been heavily focused on by MVIL.

Key drivers• Implementation of claims

management systems• Implementation of

management information systems to improve business efficiency

• Rehabilitation of NCD Motor Traffic Registry and Customer Service offices in branches

• Road safety enhancement programmes

• Implement procurement approval and control systems

29

MVIL are always looking for opportunities to diversify its domestic insurance offering, through either the group organisation or through its subsidiaries in PacificRE (reinsurance) or Pacific MMI.

Road SafetyThrough extensive research and statistical findings MVIL has recognised the significance of the nation’s road accidents and the associated tragedy and discerned that a change to driver attitudes and even legislation is long overdue to reduce the alarming rate of accidents. Figures show that PNG road fatalities and accidents are costing more than a staggering K500,000,000 per year to the economy and according to MVIL statistics there are approximately 2,000 motor vehicle accidents per year that result in approximately 200 deaths and 650 injuries.Of major concern is that the majority of accidents on PNG roads involve PMV’s that carry multiple occupants that are unrestrained. Therefore, more important than simple monetary figures are these alarming rates of death and injury, and it is because of this that last night saw the launch and implementation of a national communications strategy.


102,456 Vehicles 102,754

69.4m Revenue 70.6m

55.6m OPEX 59.2m

18.3m EBITDA 13.9m

68.7m NOPAT 49.7m

9.7% ROA 6.9%

20.0m Dividend 32.5m

6.0m CAPEX 1.4m

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

50

60

70

80

40

30

20

10

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

12%

10%

8%

6%

4%

2%

0%

Revenue OPEX EBITDA

30

Sowing the seeds for a brighter futureKumul Agriculture Limited (KAL)KAL is a holding company established by Government to hold all State’s interests in the agriculture sector of Papua New Guinea. KAL will operate as a wholly owned subsidiary of Kumul Consolidated Holdings (KCH) – all legal titles of agricultural assets, whether held directly or indirectly, will be transferred to KAL; these include: National Plantation Management Agency Limited, Sepik Agro Industries Limited and Central Dairy Limited.The Government approved for both KCH and the Department of Agriculture and Livestock to transfer the shares and ownership interest in Livestock Development Corporation Limited together with its functions, management and assets to KAL.The establishment of KAL is consistent with the Government’s Alotau Accord II that emphasises diversification of the economy through increased investment in agriculture and opportunities for public private partnerships. Sustainable agricultural projects will provide employment, local income and welfare development, and contribute to export revenue for the economy.KAL will identify, assess and where viable, invest in the development of sustainable agriculture projects across PNG from coffee to cocoa, palm oil to copra.Central Dairies fresh milk is a project where technology and ‘know-how’ were combined with land, workforce and funding, to develop a sustainable business on the outskirts of Port Moresby providing fresh dairy products. Equally Sepik Plains Agriculture Development Project represents an agri-business that will utilise 400ha, employing 250 local agricultural staff to produce poultry, stockfeed and cocoa.

70%Australia exports 70% of it’s agricultural produce. Papua New Guinea can realise the same export potential with a strategic focus on our agricultural industry.

“KCH is creating inclusive approach to agriculture management that makes food production a shared responsibility among government, farmers, food businesses and consumers.”

31

As Papua New Guinea builds the agricultural sector, it will play a strategic role in the process of economic development for our country. The agriculture sector has already made a significant contribution to the economic prosperity of first world countries and its role in the economic development of less developed countries is of vital importance, hence Papua New Guinea needs to focus its attention in building and growing our agriculture sector.In developing our agriculture sector, we will be contributing to our economic development nationwide:1. By providing food and import replacements such as

milk and dairy products.2. By rehabilitating and increasing production and

export earnings.3. Providing employment to uneducated and unskilled

labour. If the process of economic development is to be initiated and made self-sustaining, it must begin with the agricultural sector.

KCH will work with the agriculture industry to develop our existing commodities, plus investigate new domestic opportunities that can lead to international export potentials.

“Increase in agricultural production and the rise in the per-capita income of the rural community, together with the industrialisation and urbanisation, lead to an increased demand in industrial production”

32

Facilitating domestic & international trade in PNGPNG Ports Corporation Limited (PNG Ports)

PNG Ports was launched in 2006 following restructuring of its predecessors, PNG Harbours Board (1963-1969), PNG Harbours Board (1970-2002) and PNG Harbours Board Limited (2002-2006). The organization was established by virtue of the Harbours Board Act of 1963, as amended, to be the regulator and licensing authority of general port services at all maritime ports within Papua New Guinea. PNG Ports is a fully corporatized entity owned by the Government through a shareholding held by KCH. The overall management and operations of PNG Ports are regulated by the Harbours Act 2002.

PNG Port’s core business is to act as a land lord port authority and provide port infrastructure where berthing, pilotage and wharfage services are provided for shipping companies and storage provided for container and generalized cargo transiting through its ports. These ports handle in excess of over seven (7) million tonnes of cargo annually.PNG Ports currently operates fifteen (15) out of the twenty three (23) declared ports throughout Papua New Guinea. PNG Ports also provides harbor pilotage services and has licensed pilots and pilot launches in the main ports. PNG Ports is also vested with a delegated authority by the Department of Transport to provide harbour management and maritime compliance responsibilities at all land/water interfaces (wharves and jetties) declared and non-declared ports and harbours throughout the country. Its essential port services (berthage and wharfage) and prices are regulated by the ICCC under a 5 year regulatory contract expiring in December 2019.PNG Ports and KCH have invested significantly in new terminal infrastructure facilities, most recently with the relocation of the Port Moresby port, and the extension of the Motukea international wharf, and the Lae Tidal Basin port. Through an international tender, PNG Ports has engaged an international terminal operator to operate the new terminal facilities in Lae and Port Moresby under a twenty five (25) year concession agreement commencing in 2018.

Key drivers• Terminal Operator agreements at Motukea

and Lae• Develop the K350m Lae port investment

trade Park• Complete the transition from POM port

facility to Motukea• Implement port efficiency programmes to

reduce the reliance on cross-subsidies• Implement procurement approval and

control systems• Progress HSE and Security programmes

and develop marine services to international world class

33

KCH deliverables for PNG PortsPNG Ports has worked through enormous development over consecutive years. They have adhered to a plan allowing for the growth and development to service the growing requirements of Papua New Guinea. The planning and strategic input from KCH has seen PNG Ports as an on-going success story. The current emerging issues and challenges facing shipping and port facility management has brought new opportunities and ideas to improve and mitigate the challenges the company faces, compounded by relatively slow growth in global trade. The opportunities and challenges has provided the impetus for PNG Ports to reposition itself to advance its ultimate goal of maintaining and enhancing its shareholder value.In planning the future of PNG Ports, KCH has identified risk potentials in line with other global markets. These include:• International market changes - China’s growth has

been fast in the last two decades but now there are concerns of over-exposure and rising debts which could affect future trade. Whereas, India is a growing nation with democracy and transparency.

• Congestion is the second biggest reason for ports to take protective management measures.

• Unexpected negative government intervention for political and economic means will also remain a risk.

Shifting economic trends, trade flows and global demographic patterns, in conjunction with changes in port ownership has seen 2017/2018 as a “transformative year” for port development globally. PNG Ports has followed suit and will continue on the planned path into 2018 /2019 as additional ports are developed and existing port expand capacity.


7.48Mt Cargo Volume 7.39Mt


205.9m OPEX 224.6m

127.5m EBITDA 135.5m

35.0m NOPAT 39.4m

1.8% ROA 1.9%

5.0m Dividend 18.2m

150.8m CAPEX 400.0m

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

250

300

200

150

100

50

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

2.5%

3%

2%

1.5%

1%

0.5%

0

Revenue OPEX EBITDA

34

Securing PNG’s financial futureNational Development Bank (NDB)NDB is the development finance institution of Papua New Guinea. NDB is the successor company to the former Rural Development Bank Limited. Founded in 1967, its primary function is to provide accessible development credit to citizens to help them engage in income generating activities to improve their standard of living. It has a particular focus on development in rural areas where 80% of the population resides.Since its establishment in 1967, NDB has provided loans to customers in all sectors, with up to 31% of loans going to the agriculture sector and 69% to the SME sector. Its current products include long term agriculture and commercial loans, credit scheme loans including a fisheries credit facility and support for the Small Business Development Corporation Credit Guarantee Scheme. The People’s Micro Bank Limited (PMBL) is a licensed financial institution principally delivering commercial banking services to rural and remote communities. It is licensed to maintain deposits and undertakes lending.The government of PNG is embarking on a programme to restructure its development bank to promote sustainability whilst ensuring the continued delivery of core agriculture and small to medium enterprise concessional lending. Government appreciates that if medium to long term development strategies for the promotion of SMEs and agriculture projects are to be realised, then an appropriate financial institution or facility must be available and be sustainable. The full corporatisation of the development bank including seeking domestic and international investment partners presents an attractive opportunity to reposition the bank for growth, whilst still maintaining an agency to promote and provide government subsidised agriculture lending.

Key drivers• GoPNG assistance of

PGK100m to support and grow SME and Agriculture

• Branchless banking rollout programme

• Expense reduction strategy to improve profitability

• Implement procurement approval and control systems

• Corporatisation of PMBL to streamline core working capital assets and provide robust rural banking facilities

35

“We are securing and developing the future for SME’s across Papua New Guinea by providing increased capacity to lending sevices that are affordable and accessible to a large number of indigenous business sectors”

Performance

Return on Assets

2016 (Act) 2017 (Act) 2018 (Bud)

50

60

70

40

30

20

10

0

2016 (Act) 2017 (Act) 2018 (Bud) 2019 (Prj)

2.5%

2%

1.5%

1%

0.5%

0

-0.5%

Revenue OPEX EBITDA


29.5m Revenue 58.9m

41.8m OPEX 46.6m

8.4m EBITDA 18.6m

3.9m NOPAT 12.3m

0.8% ROA 1.7%

- Dividend 6.2m

30.3m CAPEX 19.5m

36

Financial StatementsThe financials of KCH and the General Business Trust, including Comprehensive Income Statements, Statement of Financial Position, Balance Sheets, Cash Flow Statements and Statements of Changes in Equity, were prepared and presented based on the audited statutory consolidated financial statements for the financial years ended 31 December 2015, 2016 and unaudited for 2017.In accordance with the well-established PNG Financial Reporting Standards, the financial statements and accompanying supporting information have been drawn up so as to present a true and fair view of the state of affairs of the General Business Trust, of its operations and cash flows.

All reports and financial statements are drawn up and managed in accordance with the provisions of the Kumul Consolidated Holdings Act (2002) and the Audit Act 1989.

37

General Business Statements Financial StatementsFor the year ended 31 December 2017

2017 PGK 2016 PGK 2015 PGK

UNAUDITED AUDITED AUDITEDIncome

Interest income 3,684,762 4,695,206 6,068,091

Dividend income 103,174,161 162,734,205 256,630,604

Management fees 10,634,455

Rental income 184,200 38,000 38,000

Other income 10,254,422 6,566,844 59,583,211

117,297,545 174,034,255 332,954,361

Expenses

Administrative expenses and interest expenses 30,000,866 29,054,658 26,997,108

Impairment losses 18,000 4,504,288 61,042,279

Losses arising from transfer of investment for nil or less consideration 71,761,000 3,895,664,510

Allocations to Trustee 36,764,504 48,928,052 59,909,162

Loss (gain) arising from FV change of Investment Property 22,894,299

Other expenses 800,000

Foreign exchange (gains)/losses (833,979) 695,206 (628,664)

66,749,391 177,837,503 4,042,984,395

Net (Loss) Income 50,548,154 (3,803,248) (3,710,030,034)

Other Comprehensive Income

Item that may be reclassified to profit or loss:

Gain (Loss) arising from fair value change of Investments 268,964,733 (336,738,889)

Reclassification adjustments for gains/(losses) included in profit or loss (46,367,094)

Total Comprehensive Income (Loss) 50,548,154 265,161,485 (4,093,136,017)

Statement of Comprehensive Income For the year ended 31 December 2017

2017

38

2017 PGK 2016 PGK 2015 PGK

UNAUDITED AUDITED AUDITEDCurrent Assets

Cash and cash equivalents 64,706,084 64,931,380 247,409,106

Trade and other receivables 508,401 612,611 1,558,523

Related Party Receivables 39,405,833 42,405,618

Other assets 109,856,481

Total Current Assets 104,620,318 107,949,609 358,824,110

Non-Current Assets

Investments 5,161,815,567 5,131,001,774 4,781,355,435

Investment properties 811,338,709 811,338,709 781,502,251

Related party receivables 47,200,476 41,321,152 24,626,561

Other non-current asset 6,755,734

Total Non-Current Assets 6,020,354,752 5,983,661,635 5,594,239,981

Total Assets 6,124,975,070 6,091,611,244 5,953,064,091

Current Liabilities

Trade and other payables 12,225,169 4,555,343 3,142,125

Related party payables 70,853,403 87,013,111 66,156,096

Provisions 109,856,481

Bank loans - current portion 56,250,000 22,500,000 22,500,000

Total Current Liabilities 139,328,572 114,068,454 201,654,702

Non-Current Liabilities

Bank loans - non-current portion 923,750,000 980,000,000 1,002,500,000

Total Non-Current Liabilities 923,750,000 980,000,000 1,002,500,000

Total Liabilities 1,063,078,572 1,094,068,454 1,204,154,702

Net Assets 5,061,896,498 4,919,860,345 4,748,909,389

Equity

Capital 2,981,120,195 2,978,620,195 2,973,770,195

Retained earnings (1,815,392,795) (1,833,945,467) (1,810,564,135)

Revaluation reserve 3,896,169,096 3,854,668,062 3,585,703,329

Total Equity 5,061,896,498 4,997,452,790 4,748,909,389

Statement of Financial Position For the year ended 31 December 2017

39

Capital PGK Retained Earnings PGK

Revaluation Reserve PGK Total PGK

As at 31 December 2014 2,898,702,015 2,328,816,921 3,968,809,311 9,196,328,247

Comprehensive income (3,710,030,034) (46,367,094) (3,736,397,128)

Dividends (450,729,107) (450,729,107)

Capital injection 75,068,180 75,068,180

Fair value change (336,738,888) (336,738,888)

As at December 2015 2,973,770,195 (1,831,942,220) 3,585,703,329 4,727,531,304

Comprehensive income (3,803,248) (3,803,248)

Dividends


Fair value change 268,964,733 268,964,733

As at December 2016 2,981,620,195 (1,835,745,468) 3,854,668,062 4,997,542,789

Comprehensive income 50,548,154 50,548,154

Dividends (30,195,482) (30,195,482)


Fair value change 41,501,034 41,501,034

As at December 2017 2,981,120,195 (1,815,392,796) 3,896,169,096 5,061,896,495

Statement of Changes in Equity For the year ended 31 December 2017

2017 PGK 2016 PGK 2015 PGK

UNAUDITED AUDITED AUDITEDCash Flow from Operating Activities

Cash payments to Trust (36,764,504) (48,928,052) (59.909,162)

Cash payments to suppliers & others (35,370,774) (27,390,734) (3,652,761)

Cash from other rental income 184,200 38,000 38,000

Net cash flows used in operating activities (71,951,078) (76,280,786) (63,523,923)

Investing Activities

Interest received 3,684,762 4,695,206 6,068,091

Dividends received 103,174,161 152,734,205 170,230,604

Amounts paid to related parties - net (5,879,324) (28,243,194) 130,341,363

Investments in quarantined funds 19,102,920

Proceeds from sale of investments & assets 10,254,422 6,566,844 135,273,671

Additions to equity investments 17,472,095 (169,356,055) (121,106,150)

Amounts paid for project costs (6,784,854) (31,863,222) (47,992,583)

Other non-current assets (23,080,724) (691,108,548)

Net cash flows provided by (used in) investing activities 121,921,262 (88,546,940) (399,190,632)

Financing Activities

Proceeds of borrowings (22,500,000) (22,500,000) 803,224,123

Dividends paid to the State (30,195,482) 364,329,106)

Capital Injection 2,500,000 4,850,000 75,068,180

Net cash flows provided by (used in) financing activities (50,195,482) (17,650,000) 513,963,197

Net movement in cash and cash equivalents (225,297) (182,477,725) 51,248,642

Cash and cash equivalents at the beginning of the year 64,931,380 247,409,105 196,155,384

Effects of exchange rate changes on the balance of cash held in foreign currencies 5,079

Cash and cash equivalents at the end of the year 64,706,083 64,931,380 247,409,106

Statement of Cash Flows For the year ended 31 December 2017

40

Closing Statement

Kumul Consolidated Holdings is the state’s private equity and investment company with a clearly-defined mandate to build shareholder wealth and to improve the provision of services to the people of Papua New Guinea by:• improving the existing and new SOE performance

through organic and external development;• investing in strategically important sectors –

currently technology, power, agriculture, fishing, property and tourism;

• investing in profitable and turnaround growth opportunities in non-oil and gas and mining industries that provide strategic and financial benefit to the state;

• leading corporate and sectoral restructuring initiatives; and,

• optimising funding opportunities for KCH and its investee companies.

We have worked relentlessly on building the appropriate plans for each of the enterprises. The days of being unprepared and unplanned is not something that KCH will tolerate within any of the enterprises. Papua New Guinea has a great future, and we can only realise this with performance based enterprises, focused on customer service, providing efficient and reliable services, that are affordable to all Papua New Guineans.Our enterprises need to provide the capacity requirements of a growing and developing nation. We cannot encourage and foster new investment within PNG, when our critical infrastructure providers covering Banking and Financial Services, Insurance, Maritime, Power, Post & Logistics, Telecommunications and Agriculture are failing to meet the requirements and needs of businesses and consumers.We are thinking differently, and we do not accept that there is no solution for challenges being faced at any level within our assets. We are working towards

delivering premier services that will employ and develop a high calibre management teams and work force nationally.To achieve our vision, we need to commit to hard work, perseverance and transformation. The decisions made now are fundamentally changing the way in which we invest, increase productivity and develop efficiencies throughout the operation. Business transformation initiatives are creating new opportunities, creating a new approach to achieve outcomes, creating job security and job enhancement. Considering the performance of the assets and the vision employed, change is not an option, it is the only choice.Our assets for too long have been allowed to maintain a status that is not acceptable both locally and when measured against global standards.Our progress has been consistent to date with each of the enterprises. We have faced all challenges directly, with on-going consultation with key stakeholder including unions and other key groups to advise and work with them for the mutually beneficial outcomes. We need to change and we need to improve. We have not delivered the profitability in each of the assets as planned, however the progressive and positive indicators are clear that the strategies and plans are starting to deliver results.While our indicators are showing progressive change, globally we are behind in many respects of performance and efficiencies. We need to improve at a pace that allows for correction and an ability to close the gap on where we need to be from an international comparison perspective. The task is not an easy fix, and there are no silver bullets. We need to adhere to our vision, we need to focus on the reforms and we must not be afraid to make the tough decisions to allow our assets to transform into enterprises that deliver profitable outcomes and create job security for generations to come.

41

Notes

42

Wewak

Mt Hagen

Kimbe

Madang

Lorengau

Port Moresby

Lae

Daru

Rabaul

Goroka

Mendi

Tari

Wabag

Jiwaka

Kundiawa

Oro Bay

Kiunga

Tabubil

Kerema

Kwikila

Bulolo

Where We Operate

Aitape

Maprik

Finschhafen

Kikori

Simbu

Vanimo

43

Lae

Alotau

Kokopo

Rabaul

Kavieng

Popondetta

Arawa

Kieta

Bialla

Lihir

Buka

Legend Air Niugini

Kumul Agriculture

Kumul Telikom Holdings

Motor Vehicle Holdings

National Development Bank

Ports PNG

PNG Power

Post PNG

Water PNG

Misima

Samarai

Namatanai

For more information, contact us:Phone: +675 321 2977 · +675 321 2972 · +675 321 2914 Fax: +675 321 2916 · +675 321 0192Address: Level 3, Harbourside West, Port Moresby, National Capital District, Papua New GuineaOnline: www.kch.com.pg Email: [email protected]

Documents

Transforming today PNG tomorrow...Transforming today PNG tomorrow A year in review á 2018 for a stronger 2 To enhance and transform all State Owned Enterprises to deliver premier